[VIDEO] Luxembourg cost-sharing exemptions in danger

The European Court of Justice has recently ruled that Luxembourg’s legislation on the cost-sharing exemption has been transposed too widely. This VAT exemption is widely used by the country’s financial services industry. And the impact of this decision for bankers, assurers and asset managers would likely to be severe. Frédéric Wersand, VAT Leader at PwC Luxembourg, explained us how this decision is about to rock the boat.

What we think

We caught up with PwC’s VAT Leader, Frédéric Wersand and chatted about immediate aspects of this decision for Luxembourg financial players. Watch his video interview:

Cost-sharing exemption: what we can expect now

Scenario 1: Changing the current rules

We still need to see how the current rules could be modified by a new regime that would match the judgment. Cost-sharing arrangements are quite flexible and allow using the directive’s exemption without requiring too heavy changes to the organisation.

Scenario 2: Charging intra-group at 17% 

If the Luxembourg decree and circular are cancelled, all these intra-group charges would be suject to the 17% VAT rate. There shouldn’t be a retroactive effect though. And a grand-fathering period may be agreed. Anyway, the companies which use these arrangements will need a certain delay to assimilate and implement the changes. But the delay could be relatively short.

Scenario 3: Creating a VAT grouping

Implementing a VAT grouping into Luxembourg law would in certain instances allow to mitigate the VAT cost within a group. The VAT Grouping provision of the EU VAT Directive allows national tax authorities to treat a group of closely connected companies as a single taxable person for VAT purposes and disregard the transactions within that tax unity. Such groupings already exist in most EU countries and major financial centres. But, it can be less flexible and heavy to set up and manage.

Finding the right set of tools will be challenging yet necessary. 

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